The Bank of Korea: "When Reflecting Demographic Changes, COVID-19 Unemployment Rate Is 0.6%P Higher Than During the Financial Crisis"

Bank of Korea 'Monthly Statistical Bulletin - Adjusted Unemployment Rate Estimates Reflecting Changes in Population Structure'

[Asia Economy Reporter Kim Eunbyeol] As a result of estimating the adjusted unemployment rate using the Dynamic Factor Model (DFM) reflecting demographic changes, the unemployment rate due to the impact of COVID-19 rose to 4.6%, which is 0.6 percentage points higher than during the financial crisis (4.0%).

On the 31st, the Bank of Korea announced in the 'Monthly Survey Statistics - Estimation of Adjusted Unemployment Rate Reflecting Demographic Changes' that while the official unemployment rate showed a gap of 0.3 percentage points between COVID-19 and the financial crisis, this gap widened to 0.6 percentage points when adjusted for demographic changes.

According to the official unemployment rate, the rate during the financial crisis was 4.1%, and during COVID-19 it was 4.4%. However, when reflecting demographic changes, the unemployment rate during the financial crisis was lower at 4.0%, and the COVID-19 unemployment rate was higher at 4.6%.

This is the result of a combined effect of the direct effect caused by population aging and the indirect effect of increased economic participation mainly among those aged 50 and over and women. The Bank of Korea analyzed that demographic changes over the past 20 years have lowered the unemployment rate by 0.4 percentage points.

While the direct effect of population aging worked to reduce the unemployment rate by 0.5 percentage points, the indirect effect of increased economic participation centered on those aged 50 and over and women raised the unemployment rate by 0.1 percentage points.

Therefore, when comparing unemployment rates by period, it is necessary to adjust the early 2000s unemployment rate downward by 0.2 percentage points and the recent unemployment rate upward by 0.2 percentage points before comparison. However, this does not mean that the current unemployment rate is actually 0.2 percentage points higher than the real level, but rather that adjustment is necessary for period comparisons.

Oh Sam-il, Deputy Head of the Employment Analysis Team at the Bank of Korea's Research Department, stated, "According to future population projections, demographic changes are expected to proceed more rapidly, so it is necessary to interpret unemployment rate trends with this in mind." He forecasted that if only changes in population proportions (direct effect) are considered, the downward pressure on the unemployment rate over the next 20 years (0.6 percentage points) will be greater than over the past 20 years (0.5 percentage points).

However, Deputy Head Oh evaluated, "Although population aging has acted as a downward factor on the unemployment rate, the unemployment rate has been trending upward over the past 10 years. This is due to labor market factors such as the overall expansion of economic participation centered on the elderly and women, and the increase in mismatch unemployment caused by structural changes in the economy, which have had a greater effect than the downward pressure on the unemployment rate caused by demographic changes."

This content was produced with the assistance of AI translation services.